Re-valuation of assets for IHT

monxton

Having realised my late father's assets after getting probate, there are some changes to the amounts I submitted initially. Please could I have some advice about how to handle this. I've found the "C4 Corrective Account" form (https://www.gov.uk/government/publications/inheritance-tax-corrective-account-c4) so I understand the mechanism, but I'm not sure about the amounts.

Firstly, I submitted the valuation for his investments at the date of his death, as supplied by his FA. When they were eventually sold after probate was granted, their value had increased. Am I obliged to declare this increase and pay IHT on it? I think not, because IHT has been paid on the value at the date of death, and there was no uncertainty about the value then. Is that right?

Secondly, about his house: when I completed the Inheritance Tax forms, I submitted three estate agents' valuations of his house, which I obtained in July 2016, and used the middle one for the estimate. The house went on the market in December 2016, and eventually sold for about 5% more than the valuation. I accept that his estate is liable to pay further IHT on the difference in value. I'm just wondering, that it seems to me that at least part of the increase is down to a general increase in property values over that period, rather than to the three valuations being low in the first place, and again I'm assuming that the IHT is payable on the value at the date of his death. Is it even worth putting that view, or should I just get over it and put the actual sale price as the corrected value?

The situation with the IHT account is that it was accepted provisionally in January 2017, but I haven't had a squeak from them since. The letter said they would contact me in due course to finalise the account.

Yorkshireman99

You really need a professional valuation at the date of death by a RICS or similar surveyor. Estate agents "valuations" are notoriously unreliable. The estate may be liable for CGT on the gain from the date of death to the date of sale but not extra IHT. The share values should have been the "mid" price on the date of death that may be different from what the IFA gave you. Any gain since would be subject to CGT not IHT.

monxton

Thanks Yorkshireman99. I've seen that the accepted view in this forum is that the valuation should be by a RICS surveyor, however that wasn't the view of my father's solicitor, who told me I should do the three-estate-agents thing. Are you suggesting I should get a surveyor's valuation now, backdated a year? (Might be difficult, as somebody else owns it now!) And if I did, is it even likely that HMRC would accept it as the true value and ignore the later sale price?

If I've understood you correctly, then any increase in the value of the house would be subject to CGT anyway, so there's a swings-and-roundabouts trade-off between IHT and CGT, and although the latter is a lower rate, the difference may be not worth getting excited about. If I just submit the corrective account for the house valuation, then I wouldn't have to worry about CGT on the house.

Thanks for the information about the share values. It's my understanding that the estate has its own Capital Gains allowance, but I think the increases may exceed that. Should I have done something to declare them for CGT, or will HMRC do that when they eventually get back to me about finalising the IHT?

Yorkshireman99

monxton wrote: »

Thanks Yorkshireman99. I've seen that the accepted view in this forum is that the valuation should be by a RICS surveyor, however that wasn't the view of my father's solicitor, who told me I should do the three-estate-agents thing. Are you suggesting I should get a surveyor's valuation now, backdated a year? (Might be difficult, as somebody else owns it now!) And if I did, is it even likely that HMRC would accept it as the true value and ignore the later sale price?

If I've understood you correctly, then any increase in the value of the house would be subject to CGT anyway, so there's a swings-and-roundabouts trade-off between IHT and CGT, and although the latter is a lower rate, the difference may be not worth getting excited about. If I just submit the corrective account for the house valuation, then I wouldn't have to worry about CGT on the house.

Thanks for the information about the share values. It's my understanding that the estate has its own Capital Gains allowance, but I think the increases may exceed that. Should I have done something to declare them for CGT, or will HMRC do that when they eventually get back to me about finalising the IHT?

I can only say that the District Valuer who HMR&C will refer the valuation to if they have any query are not easy for a layman to negotiate with so you really a RICS to do this for you. If the estate was well below the IHT limit it might be academic but even so a solid base for any future CGT calculation by the beneficiaries could be important. The solicitor is not giving good advice. The estate gets a CGT allowance so it might be cheaper than IHT. The executors have to do a tax return for any income and CGT during the administration.

getmore4less

The shares(assuming they are all traded) are the easy one as you have absolute value at DOD.

Any income eventual sale are tax dealing during period of administration not IHT.

House can be a bit more of an issue as you need the DOD value ascertained for the IHT and the CGT assessments.

if not unique a bit of research on real sold prices od similar will give an indicator of how far out it may have been around the DOD.

if the EA are also qualified valuers(in some areas a lot are) then if they new it was a probate sale with or without IHT due they may have picked a value at one end of the range to assist the IHT situation.

5% is well withing the variation on values anyway so depending on area a sale 6-12 months later of only 5% more could be an indicator they were on the high side anyway.

it may be that the numbers involved mean you can be happy to let the district valuer have their go at the DOD value.

The tax board has people that can give you more info on how to approach this as there are options to ask HMRC to look at your valuations in advance of final submission.

monxton

Thanks. I haven't submitted a C4 at this stage, but I've written to my HMRC IHT contact and informed him of the actual sale price of the house. I'll wait and see what their view on the DOD value is.

Yorkshireman99

getmore4less wrote: »

The shares(assuming they are all traded) are the easy one as you have absolute value at DOD.

Any income eventual sale are tax dealing during period of administration not IHT.

House can be a bit more of an issue as you need the DOD value ascertained for the IHT and the CGT assessments.

if not unique a bit of research on real sold prices od similar will give an indicator of how far out it may have been around the DOD.

if the EA are also qualified valuers(in some areas a lot are) then if they new it was a probate sale with or without IHT due they may have picked a value at one end of the range to assist the IHT situation.

5% is well withing the variation on values anyway so depending on area a sale 6-12 months later of only 5% more could be an indicator they were on the high side anyway.

it may be that the numbers involved mean you can be happy to let the district valuer have their go at the DOD value.

The tax board has people that can give you more info on how to approach this as there are options to ask HMRC to look at your valuations in advance of final submission.

A proper valuation by a RICS qualified surveyor will not be biased down just because it is for probate. The "values" the OP are likely to have been given by the sales staff of the estate agents rather than an actual RICS surveyor on their staff. The OP may be lucky and find the figure originally given may be accepted by the District Valuer. However don't expect the DV to show any bias. If the OP has to have a proper RICS survey they will negotiate with the DV to reach a mutually agreed value. Finally remember that valuation is not an exact science but if you do use, and pay for, a RICS surveyor they may well save you money if they are a good negotiator.

monxton

In this case the estate agents' valuations were also serving as bids for the executor's business in selling the house, so biasing them downwards would not have been in their interests. I think the agents are all well aware that HMRC will not pass this stuff through without examination, and wouldn't want to get a reputation with the DV for dubious valuations.

In the light of this discussion, I re-read the advice in the IHT 400 notes. They refer to a "professional" valuer, not to a "qualified" one, and there is no reference to RICS. Moreover the notes discuss getting "several valuations which give a range of values for the property" which would be a considerable expense if you were paying the sums that have been mentioned for each of those valuations.

As already discussed, I used the three EA valuations because that's what my father's solicitor, who handles probate all the time, said I should do, and indeed I used the agents she recommended. Whether she was wrong, I am in no position yet to judge, as this is my first (and I hope my only) experience of handling probate, but time will tell, and I'll report back here when it's dealt with.

Yorkshireman99

monxton wrote: »

In this case the estate agents' valuations were also serving as bids for the executor's business in selling the house, so biasing them downwards would not have been in their interests. I think the agents are all well aware that HMRC will not pass this stuff through without examination, and wouldn't want to get a reputation with the DV for dubious valuations.

In the light of this discussion, I re-read the advice in the IHT 400 notes. They refer to a "professional" valuer, not to a "qualified" one, and there is no reference to RICS. Moreover the notes discuss getting "several valuations which give a range of values for the property" which would be a considerable expense if you were paying the sums that have been mentioned for each of those valuations.

As already discussed, I used the three EA valuations because that's what my father's solicitor, who handles probate all the time, said I should do, and indeed I used the agents she recommended. Whether she was wrong, I am in no position yet to judge, as this is my first (and I hope my only) experience of handling probate, but time will tell, and I'll report back here when it's dealt with.

As usual the HMR&C notes are imprecise! Essentially the most common professional qualification who provide paid for valuations but there are others. AFAIK nobody would expect several paid fore valuations. Free valuations tend to be worth what you paidf for them. As well as providing a valuation a professional valuer will also negotiate wiuth the DV to reach a mutually acceptable compromise. Also remember that valuation of property is not a precise science and a valuation span of 10% is not unusual. I have nenver heard of a solicitor suggesting using unpaid estate agents valuations where there might be a possibility of IHT being payable. She might find it hard to defend in court.The bottom line is that it is your choice!

Linton

Yorkshireman99 wrote: »

... I have nenver heard of a solicitor suggesting using unpaid estate agents valuations where there might be a possibility of IHT being payable. She might find it hard to defend in court.The bottom line is that it is your choice!

Sorry Yorkshireman, the highly experienced solicitor who looked after the probate of my father's IHT liable estate proposed using 2 estate agents which we were happy to accept. So things arent as definite as you suggest. It seems that as long as the valuation is seen as reasonable HMRC arent going to query it. They seem pretty forgiving unless they think you are really taking the p**s.

As it happened the house had sold (subject to probate) for 7% more than the higher valuation by the time we were ready to fill in the IHT forms so we were able to use the actual price.

Yorkshireman99

Linton wrote: »

Sorry Yorkshireman, the highly experienced solicitor who looked after the probate of my father's IHT liable estate proposed using 2 estate agents which we were happy to accept. So things arent as definite as you suggest. It seems that as long as the valuation is seen as reasonable HMRC arent going to query it. They seem pretty forgiving unless they think you are really taking the p**s.

As it happened the house had sold (subject to probate) for 7% more than the higher valuation by the time we were ready to fill in the IHT forms so we were able to use the actual price.

The price needs to be at the DOD not at some later date. Whatever the solicitor may have told you it is very well established practice, over many years, that a professional valuation is the right one. By using the incorrect valuation there is also the question of CGT. IMHO you need advice from an IHT specialist not a non specialist high street solicitor.